Seeking Alpha
, stockmatusow (1,007 clicks)
Long/short equity, deep value, value, research analyst
Profile| Send Message|
( followers)  

Trading biotech stocks before a catalyst event, if done correctly, can be a very profitable proposition. Some traders and investors who enjoy bringing more risk into play oftentimes will hold through the actual event. While this does bring more risk into play, the reward from engaging in this can be a massive one.

Celsion Corporation (CLSN)

Celsion engages in the development and commercialization of targeted chemotherapeutic oncology drugs based on its proprietary heat-activated liposomal technology.

Celsion expects to announce top line results from its Phase III clinical trial for ThermoDox, a potential treatment for liver cancer. ThermoDox is also being evaluated in a Phase II clinical trial for recurrent chest wall breast cancer and a Phase II clinical trial for colorectal liver metastasis.

According to the company:

Using its LTSL technology, Celsion has encapsulated doxorubicin, a proven and frequently used cancer drug, to create ThermoDox. The heat-sensitive liposome rapidly changes structure when heated to a specific temperature, creating openings in the liposome which release doxorubicin directly into the targeted tumor.

ThermoDox, delivered by IV infusion, is designed to be used in combination with hyperthermic (heat-based) treatments, such as radiofrequency thermal ablation (RFA), microwave hyperthermia and high intensity focused ultrasound (HIFU). The goal of the ThermoDox approach is to expand the effective treatment zone of these technologies to capture micro-metastases which are most commonly responsible for post-treatment disease recurrence. For example, in primary liver cancer patients, there is a very high one-year recurrence rate to the immediate area of the original ablated region. Addressing this expanded area as part of the treatment regimen may potentially reduce recurrence rates and improve patient outcomes.

The Celsion stock price has been all over the place lately, making it a very volatile trade. Results from the company's trial, called "The HEAT Study" are expected to be announced sometime early this month. Some stock writers are bullish on the drug, while others are bearish. My opinion is basically in the middle of the two. But, I lean towards the bearish view simply because of how the stock has been trading.

The stock seems to have run into a triple top situation while I did not see a move yesterday to support the likeliness of positive data here. However, this does not mean the data will be bad. It means with all the volatility, that there is no clear indicator either way.

Santarus (SNTS)

Santarus engages in acquiring, developing, and commercializing proprietary products that address the needs of patients treated by physician specialists.

The company has an FDA Prescription Drug User Fee Act (PDUFA) target action date of January 16, 2013, for the review of its New Drug Application for Uceris (budesonide) 9 mg tablets.

Uceris is an investigational drug that contains budesonide, a corticosteroid, in a novel oral tablet formulation. It utilizes the company's proprietary MMX multi-matrix system technology which is designed to result in the controlled release and distribution of budesonide throughout the length of the colon.

Both of the company's Phase II and Phase III studies were statistically significant for the induction of remission in active, mild, and moderate ulcerative colitis. With the significance in these results and over 1000 patients in the trials, it looks like approval is a good bet here.

Also, according to fellow stock writer Bret Jensen who I consider to be very good, four reasons Santarus is a good growth play at just over $10 a share are:

1. A director made a $2mm purchase two weeks ago. It was the first insider buy since the first quarter.

2. Earnings are rising impressively. The company earned just 7 cents a share in FY2011, but it is on track to triple EPS in FY2012. Analysts expect the company to more than triple earnings again in FY2013 with a consensus earnings estimate north of 75 cents a share currently.

3. The company has a solid balance sheet with more than 10% of its market capitalization in net cash. SNTS sells for just over 14x forward earnings, a discount to its five year average (24.4).

4. After growing more than 75% in FY2012, analysts expect a better than 40% sales gain in FY2013.

The strong short term catalyst event along with the compelling case Bret makes for Santarus makes it a strong long based trade at its current price level.

ArQule Inc. (ARQL)

ArQule engages in the research and development of cancer therapeutics directed toward molecular targets and biological processes. Its lead product candidate tivantinib (ARQ 197) is an inhibitor of the c-Met receptor tyrosine kinase, which is in clinical trials for the treatment of liver cancer and colorectal cancer (CRC).

Phase II top-line data covering CRC is due out early this year for ARQ 197. The data release will estimate the difference in progression-free survival between the study and control arms in subjects with CRC with wild-type KRAS who have received front-line therapy.

In October of last year, the company halted its study of ARQ 197, known as the "Marquee Study" for Non-Small Cell Lung Cancer (NSCLC) treatment, as the drug failed to meet the goal for improving Overall Survival (OS). However, many drugs that have failed in treating NSCLC have found success in treating other forms of cancer. This is why the stock has recovered quite a bit from its 52 week low of $1.98. While it is certainly a risky trade like most small cap developmental biopharmas, the reward here could be a massive one if the CRC data shows positive results. Additionally, I believe the stock at its current price level is an undervalued speculation bet.

Arena Pharmaceuticals (ARNA)

Arena engages in discovering, developing, and commercializing oral drugs that target G protein-coupled receptors in the therapeutic areas of cardiovascular, central nervous system, inflammatory, and metabolic diseases.

Since the approval of its weight loss drug Belviq in June, the stock has fallen from a yearly high of $11.39 to $7.21, a fall of 37%. I feel long term investors have excellent value here at its current price level of around $9 a share.

Recently, the Drug Enforcement Agency placed Belviq in a schedule IV classification which will allow physicians to prescribe Belviq to patients via fast electronic script through local pharmacies for a three-month supply (90 pills) at a time. This is a big plus in factoring in potential sales for the drug.

The catalyst for Arena is in early 2013 when the company along with its marketing partner Eisai Pharma will officially launch Belviq. One well known biotech writer believes Belviq will see failure on its launch while I disagree. A few doctors I have spoken to have told me they receive many requests from patients looking for help to lose weight, and are looking forward to prescribing Belviq to their patients. Belviq can certainly help those who suffer from weight issues as studies have shown (which is why the FDA approved it).

While I do not think Belviq is the "magic pill" in and of itself, many who try it are likely to receive a strong placebo effect from the drug, believing it will help them. Arena has a solid marketing partner with Eisai, a company with a good track record. So I believe Belviq will see a successful launch. I also believe it's important to separate one's personal bias when forecasting business results. Personally, I am not wild about Belviq, as I mentioned, I really do not think it's the magic pill some believe it is to treat obesity. Regardless, business wise it should be a big winner, because many people who are obese are desperate for help. When patients have a strong belief a drug will help them, especially when it comes to losing weight, these same patients might be motivated to seek better eating and exercise habits. Therefore, it comes down to business, and not my personal or moral opinion about the drug. My opinion is that Belviq will be a big winner business wise for Arena. Also, it's my strong opinion that Belviq will gain European Medicine Agency (EMA) approval for the same reason it gained FDA approval, because it works and it's safe.

One company that has been very under the radar that might offer the largest percentage trade gain for Q1 of this year is EDAP TMS SA (EDAP).

EDAP engages in the development, manufacture, and marketing of minimally invasive medical devices primarily for urological diseases.

In early November EDAP held a pre-marketing approval (PMA) meeting with the U.S. FDA to discuss the PMA submission for the company's Ablatherm-HIFU Phase II/III clinical trial for the indication of low risk, localized prostate cancer. Based on the guidance received in this FDA interaction, EDAP is finalizing its PMA file for submission in January 2013.

Ablatherm® HIFU was jointly developed by Inserm (French Institute of Medical Research) and EDAP TMS in the early 1990s and is based on High Intensity Focused Ultrasound technology which creates a precise and irreversible coagulation necrosis of the targeted tissue while preserving the surrounding tissue.

In 2011, the company reported results from a 10 year study of the device.

The study showed 83% of patients had no biopsy evidence of disease after treatment with Ablatherm HIFU, supporting the technology as a standard primary treatment for localized prostate cancer. Study results were presented at the American Urological Association (AUA) 2011 Annual Meeting, Washington, D.C.

The largest, long-term study ever presented on high-intensity focused ultrasound (HIFU) reported outcomes from 2,552 patients treated throughout Europe, where Ablatherm-HIFU is currently available. Patients diagnosed with stage T1-T3 prostate cancer with low, moderate, or high risk for disease progression were treated with Ablatherm-HIFU. Outcomes were followed using a secure online registry database, which tracked progression as measured by prostate-specific antigen (PSA) levels and prostate biopsy data.

Results from this robust, multi-center study were remarkably consistent across progression risk groups, demonstrating that HIFU is effective at controlling prostate cancer for all patients. These favorable clinical outcomes were also highly reproducible, which has a critical real-world impact on how effectively HIFU can be used to treat the disease worldwide.

Andreas Blana, MD, Senior Investigator and Associated Professor at the University of Regensburg Germany, explained,

The study revealed cancer cells could no longer be detected by a prostate biopsy in 83 percent of patients across all risk levels (low 89%, moderate 81%, high 78%). Consistent with previous HIFU studies, patients also experienced a mild side-effect profile.

The current market cap of EDAP is $38.34M, which I would expect to be much higher if the company gets the go ahead from the FDA to market the device once the PMA is reviewed and accepted. The USA market for a device like this could be very large, and the device might have an advantage over prostrate cancer drugs in terms of patients' compliance. The biggest attraction here in my opinion is again, the undervalued market cap. I'm not sure I would like this one now if it was selling for $5 a share. But, at a little over $2 a share, I feel it has the potential to see at least a price double for this year with the catalysts in place.

Significant company achievements reported in the last earnings report include:

  • Recorded robust 13% sales growth over the nine-month period
  • Strong lithotripsy sales in third quarter and replenished fourth quarter device backlog in lithotripsy and Ablatherm-HIFU
  • Generated positive cash flow during third quarter 2012
  • Held productive pre-PMA meeting with U.S. FDA for Ablatherm-HIFU Phase II/III clinical trial

EPAD is net cash positive, so there is very little cash burn which many small cap biopharmas have to deal with by engaging in dilutive financing deals.

In terms of a big potential price move, EPAD reminds me a bit of BioDelivery Sciences International (NASDAQ:BDSI) when I first covered it at $2.57 a share last year. Since my article about BioDelivery, the stock hit a 52 week high of $6.89 - it currently trades at $4.52.

2013 should be a good year for biotechs, but not every biotech company is going to do well. In the next few weeks, I will also list some companies I feel are overvalued, so stay tuned for those.

Additional disclosure: Family member holds EDAP stock.

Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.

Source: Thursday's Small Cap Biotech Catalyst Watch List